A contract that results from an offer that expressly requires performane as the only possible method of acceptance
What are the 2 sources of law for contract law?
1) Common Law -- applies to real estate, services, etc. that are NOT sale of goods
2) Article 2 -- applies to contracts that are primarily for the sale of goods (type of transaction and subject matter of the transaction are the relevant factors)
What is the rule for a "mixed-deal" contract? What is the exception to the rule?
The more important part controls -- even if a particular source of law would not otherwise apply to a particular section, the more important part of the contract's law applies to the other part as well
Exception: If the contract divides up the payment then the applicable law applies to the applicable part (basically the law treats it as two separate contracts)
What is the definition of a contract?
A contract is an agreement that is legally enforceable
What is the definition of an offer?
An offer is a manifestation of an intention of one person to contract -- words or conduct showing commitment by one person.
The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract
How are missing price terms treated under contract law?
Common law: Price is required for an offer
Article 2: Price is not required for there to be an offer
What is the rule for vague and ambiguous terms under contract law?
Common law: Vague/ambiguous material terms will not be an offer
Article 2: Vague/ambiguous material terms will not be an offer
**The terms: "appropriate," "fair," and "reasonable" = vague**
How are missing quantity terms treated under contract law?
1) Quantity can be expressed in terms of buyer's requirements or seller's output (relevant language = "all," "solely," "exclusively")
2) The buyer can increase requirements so long as the increase is in line with prior demands (it must be reasonable which is defined by proportion to past demands)
What is the rule for advertisments and offers under contract law? What are the exceptions?
General rule: An advertisment or price quotation is NOT an offer
The exceptions are:
1) An advertisement can be a unilateral offer if it is in the nature of a reward (e.g. Carbolic Smoke Ball)
2) An advertisment can be an offer if it specifies quantity and expressly indicates who can accept (e.g. "1 fur coat $10 -- first come, first served")
3) Price quotation can be an offer if sent in response to an inquiry
What are the 4 methods of terminating an offer?
1) Lapse of time (time stated or reasonable time)
2) Death of a party prior to acceptance
3) Revocation of an offer (by offeror)
4) Rejection by offeree
What is the general rule regarding death of a party prior to acceptance?
Death or incapacity of either party after the offer, but before acceptance, terminates the offer
Exception: Irrevocable offers
What are the ways in which an offer can be revoked?
1) Later unambiguous statement by offeror to offeree of unwillingness or inability to contract; OR
2) Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of
3) Multiple offers will not be considered revocation
Which offers are irrevocable?
1) Option: an offer cannot be revoked if the offeror has not only made an offer but also (i) promised to not revoke (or promise to keep the offer "open") AND (ii) this promise is supported by payment or other consideration
2) UCC "Firm Offer Rule": An offer cannot be revoked for up to 3 months if (i) offer to buy or sell goods, (ii) signed, written promise to keep the offer open, and (iii) offeror is a merchant
3) Reliance: If there has been (1) reliance, that is (2)reasonably foreseeable and (3) detrimental
4) Unilateral contract: The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance (mere preparation is different from performance)
What are the three methods of rejection?
1) Counteroffer: Counteroffer generally terminates the offer and creates a new offer. Where a counteroffer has been made, there is no express contract unless that counteroffer has itself been accepted. Counteroffers need to be distinguished from bargaining. Bargaining does no terminate the offer. And, counteroffers do not terminate options.
2) Conditional Acceptance: Look for a response to an offer with the word "accept" followed by one of these words or phrases: "if," "only if," "provided," "so long as," "but," or "on condition that"
Under the common law, a conditional acceptance rejects the offer and becomes a counteroffer that can be accepted by conduct
Under UCC, it simply rejects the offer.
3) Common Law Mirror Image Rule: A response to an offer tht adds new terms is treated like a counteroffer rather than acceptance
How are additional or different terms treated under UCC Article 2?
Where there is (1) an offer to buy or sell goods AND (2) a response with additional or different terms raises 2 separate questions:
1) Is there a contract?
A response to an offer that adds additional or different terms, but not make the new terms a condition of acceptance, is generally treated as an acceptance
2) Is the additional term a part of the contract?
The additional term is a part of the contract only if (i) both parties are merchants AND (ii) additional term is not "material"(fact question) AND (iii) the additional term is not objected to by original offeror
Does start of performance generally constitute acceptance?
Yes, starting to perform is treated as an implied promise to perform and so there is a bilateral contract.
Exception: Start of performance is not acceptance of unilateral contract offers (completion of performance is required).
What are the rules of acceptance with respect to distance and delay in communications?
1) All communications other than acceptance are effective only when received
2) Acceptance is generally effective when mailed
3) If a rejection is mailed before an acceptance is mailed, then neither is effective until received
4) You cannot use the mailbox rule to meet an option deadline
What happens when the seller of goods sends the "wrong" goods?
General rule: acceptance and breach
Exception: If there is an accommodation (or explanation), then it is considered a counteroffer and no breach
Who can accept an offer?
An offer can be accepted only by:
1) a person who knows about the offer at the time she accepts; AND
2) the person to whom it was made
Are offers and options assignable?
Offers cannot be assigned. Options can be assigned unless the option otherwise provides.
What are the legal reasons for not enforcing an agreement?
1) lack of consideration or a consideration substitute for the promise at issue
2) lack of capacity of the person who made that promise
3) Statute of Frauds
4) existing laws that prohibit the performance of the agreement
5) public policy
10) ambiguity in words of agreement
11) mistakes at the time of the agreement as to the material facts affecting the agreement
What are the 3 steps to go through in dealing with consideration questions?
1) identify the promise breaker
2) ask whether that person asked for something in return for her promise (i.e. bargained for something)
3) look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained
(Bottom line: LOOK FOR BARGAINED-FOR LEGAL DETRIMENT)
True or False: One party's promise can satisfy the consideration requirement.
Exception: Illusory promises (e.g. A promises to sell unless A changes his mind)
True or False: The adequacy of consideration is relevant in contract law.
False, "a mere peppercorn is enough"
What is the general rule regarding past consideration?
Past consideration is not consideration, unless it is expressly requested by the promisor AND expectation of payment by promisee
What is the common law pre-existing contractual or statutory duty rule?
Doing what you are already legally obligated to do is not new consideration for a promise to pay you more to do merely that. Under commen law, new consideration is required for contract modification.
1) addition to or change in performance
2) unforeseen difficulty so severe as to excuse performance
3) third-party promise to pay
What is the Article 2pre-existing contractual or statutory duty rule?
Article 2 does not have a pre-existing legal duty rule. New consideration is not required to modify a sale of goods contract. Good faith is the test for changes to an existing sale of goods contract.
When does part payment constitute consideration for release? (i.e. promise to forgive balance of debt)
The key is whether the debt is due and undisputed. If the debt is due and undisputed, then part payment is not consideration for release.
What are the substitutes for consideration?
1) A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration (i.e. statute of limitations defense)
2) Promissory estoppel (detrimental reliance)
What are the elements of promissory estoppel?
2) Reliance that is reasonable, detrimental, and foreseeable
3) Enforcement necessary to avoid injustice
Who lacks capacity to contract?
1) Infants (under 18)
2) Mental incompetents (lacks ability to understand agreement)
3) Intoxicated persons (if other party has reason to know)
What are the consequences of incapacity?
1) Right to disaffirm by person without capacity
2) Implied affirmation by retaining benefits after gaining capacity (ratification)
3) Quasi-contract liability for necessaries (a person who does not have capacity is legally obligated to pay for things that are necessary, such as food, clothing, medical care, or shelter, but that liability is based on quasi-contract law)
What is the proof required to satisfy the Statute of Frauds?
Either 1) performance; or
2) a writing signed by the person who is asserting that there was no such agreement
Bottom line: If a contract claim is within the Statute of Frauds, then the Statute of Fraud's requirement of "special proof" must be satisfied to get through that Statute of Frauds barrier to get to a trial
What are the 4 contracts within the Statute of Frauds?
1) Promises to answer for the debts of another (suretyship) (look for guarantee)
Subject to the main purpose exception: If the main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is within the Statute of Frauds
2) Service contract not capable of being performed within a year from the time of the contract
3) Transfers of interest in real estate (with exception for leases of 1 year or less)
4) Sale of goods of $500 or more
How is the Statute of Frauds applied to service contracts not capable of being performed within a year from the time of the contract?
1) If the specific time period is more than a year, the Statute of Frauds applies
2) If the specific time is more than a year from the date of the contract, the Statute of Frauds applies
3) If it is a task and nothing is said about time, the Statute of Frauds does not apply
4) If it is for life, the Statute of Frauds does not apply
Practically speaking, how does the Statute of Frauds defense work?
If the Statute of Frauds is applicable, then the requirements of the Statute of Frauds must be met in order for the agreement to be enforceable.
If the requirements of the Statute of Frauds are not satisfied, there is a Statute of Frauds defense.
And, if there is a Statute of Frauds defense asserted and established, there is no legally enforceable agreement (i.e. no contract liability)
What is the rule for satisfaction of the Statute of Frauds for performance and transfer of real estate?
Part performance satisfies the Statute of Frauds in transfers of real estate.
Part performance requires any two of the three: 1) improvements to the land, 2) payment, and 3) possession
What are the rules for satisfaction of the Statute of Frauds for performance and services contracts?
1) Full performance by either party satisfies the Statute of Frauds
2) Part performance of a services contract does not satisfy the Statute of Frauds
What are the rules for satisfaction of the Statute of Frauds for part performance and sale of goods contracts?
1) (Seller's part performance -- ordinary goods) Part performance of a contract for the sale of goods satisfies the Statute of Frauds, but only to the extent of the part performance (look to see if delivered or undelivered goods)
2) (Seller's part performance -- manufactured goods) If the contract is for the sale of goods that are to be specially manufactured, then the Statute of Frauds is satisfied as soon as the seller makes a "substantial beginning" (This means that the seller has done enough work that it is clear that what she is working on is specially manufactured)
What are the requirements for the Statute of Frauds to be satisfied in writing?
1) Statute of Frauds other than Article 2:
Look at the contents of the writing or writings -- all material terms test. Look also at who signed the writing. The writing satisfies the Statute of Frauds so that there is no Statute of Frauds defense if the writing has been signed only by the defendant (i.e. the person asserting the Statute of Frauds defense)
2) Article 2 Statute of Frauds:The writing must simply indicate that there is a contract for the sale of goods AND contain the quantity term
What are the 2 other instances in which the Statute of Frauds can be satisfied?
1) Judicial admission: If the defendant asserting a Statute of Frauds defense admits in pleading or testimony that he had entered into an agreement with the plaintiff, the Statute of Frauds is satisfied
2) Estoppel: Some cases hold that the plaintiff's reliance on the defendant's oral promise can estop the defendant from asserting a Statute of Frauds defense
What are the other instances in which the Statute of Frauds comes up on the bar exam?
1) Written proof of authorization to enter into a contract for someone else:
Rules of law require that the authorization must be in writing only if the contract to be signed is within the Statute of Frauds (i.e. authorization must be of "equal dignity" with the contract)
2) Written proof of contract modification:
If the deal with the alleged change would be within the Statute of Frauds, then the alleged modification agreement must be in writing
3) Contract provisions requiring written modification:
Under common law, contract provisions requiring that all modifications be in writing are not effective (ignore contract language)
Under UCC, contract provisions requiring written modifications are effective unless waived
When is illegality grounds for not enforcing an agreement?
1) If the subject matter is illegal, then the agreement is not enforceable
2) If the subject matter is legal, the agreeement is enforceable if the plaintiff did not have reason to know of the defendant's illegal purpose
What are the typical examples of when a court will not enforce an agreement because of public policy?
Look for an exculpatory agreement that exempts intentional or reckless conduct from liability OR a covenant not to compete without a reasonable need or reasonable time and place limits
When is misrepresentation grounds for not enforcing an agreement?
1) a statement of "fact" before the contract
2) by one of the contracting parties or her agent
3) that is false, and
4) induces the contract
(No wrongdoing required for material misrepresentations)
When is nondisclosure grounds for not enforcing an agreement?
Generally, a person making a contract has no duty to disclose what she knows.
Wrongdoing requirement for nondisclosure (look for fiduciary-like relationship or concealment)
When is duress or undue influence grounds for not enforcing an agreement?
1) Physical duress
2) Economic duress (the elements are: (a) improper threat which is usually threat to breach existing contract AND (b) no reasonable alternative)
3) Undue influence: Look for (a) special relationship between the parties AND (b) improper persuasion of the weaker by the stronger
When is unconscionability grounds for not enforcing an agreement?
1) unfair surprise (procedural) and oppressive terms (substantive)
2) tested as of the time the agreement was made
3) by the court
When is ambiguity in the words of an agreement grounds for not enforcing an agreement?
There will be no contract if:
1) parties use a material term that is open to at least 2 reasonable interpretations
2) each party attaches different meaning to the term
3) neither party knows or has reason to know the term is open to at least 2 reasonable interpretations
When is mistake of fact existing at the time of the contract grounds for not enforcing an agreement?
1) Mutual, material mistake of existing fact
2) Unilateral mistake of fact (Courts are generally reluctant to allow a party to avoid a contract for a mistake made by only 1 party, but there will be relief for situations in which the other party had reason to know of the mistake)
How should you approach the parol evidence rule for the purposes of the bar exam?
The parol evidence rule is like an evidence rule in the sense that (1) the issue is whether the evidence is admissible, and (2) admissibility often depends on the purpose for which the evidence is to be introduced
What is integration?
Written agreement that the court finds is the final agreement (it triggers the parol evidence rule)
What is partial integration and complete integration?
(Either of them is usually the wrong answer)
Partial integration: written and final, but not complete
Complete integration: written and final and complete
What is a merger clause?
(For purposes of CA bar, merger clauses are persuasive, not conclusive)
Contract clauses such as "This is the complete and final agreement."
What is "parol evidence"?
Word of party or parties before integration (i.e. before the agreement was put in written form) that are either oral or written
True or False: Evidence of earlier agreements is admissible for the purpose of contradicting the terms in the written contract.
False; never admissible
True or False: A court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration (i.e. a clerical mistake in reducing the agreement to writing).
Can a court admit evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement?
Does the parol evidence rule prevent a court from admitting evidence of earlier agreements to resolve ambiguities in the written contract?
How is the parol evidence rule applied to additional terms to a written deal?
The parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds
1) that the written agreement was only a partial integration OR
2) that the additional terms would ordinarily be in a separate agreement
Conduct can also be a source of contract terms. What are the 3 forms of conduct?
1) course of performance (first)
2) course of dealing (second)
3) custom and usage (third)
If there is an agreement as to place of delivery by a common carrier, what does the seller have to do to complete its delivery obligation? (2 possible UCC answers)
1) Shipment contracts (more common): the seller completes the delivery obligation when it (i) gets the goods to a common carrier, and (ii) makes reasonable arrangements for delivery, and (iii) notifies the buyer (ALL BEFORE THE DELIVERY IS COMPLETE)
2) Destination contracts: the seller does not complete its delivery obligation until the goods arrive at the destination
How do you determine if a contract is a shipment or destination contract?
Most contracts with delivery obligations are shipment contracts.
Look for FOB (free on board): FOB followed by city where the seller is or where goods are means shipment contract; FOB followed by any other city means destination contract
What is the risk of loss problem?
Risk of loss issues arise where (i) after the contract has been formed, but before the buyer receives the goods, (ii) the goods are damaged or destroyed, and (iii) neither the buyer nor the seller is to blame
What are the possible consequences in a risk of loss problem?
1) If the risk of loss is on the buyer, he has to pay the full contract price for the lost or damaged goods
2) If the seller has the risk of loss, no obligation on the buyer and possible liability on the seller for nondelivery
What are the 4 risk of loss rules?
(Title is IRRELEVANT)
1) Agreement: agreement of the parties controls
2) Breach: breaching party is liable for any uninsured loss even though breach is unrelated to problem
3) Common carrier delivery: risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations
4) "Catch-all": the determining factor is whether the seller is a merchant. Risk of loss shifts from a merchant-seller to buyer on the buyer's "receipt" of the goods; risk of loss shifts from a non-merchant seller to buyer when he "tenders" the goods
What are the warranties of quality?
1) Express warranties: look for words that promise, describe, or state facts
2) Implied warranty of merchantibility: When any person buys any goods from any merchant, a term is automatically added to the contract by operation of law -- that the goods are fit for the ordinary purpose for which such goods are used.
3) Implied warrant of fitness for a particular purpose: buyer has particular purpose; buyer is relying on seller to select suitable goods; seller has reason to know of purpose and reliance
What are the limitations on warranty liability?
1) Statute of limitations: There is a 4-year statute of limitations, and generally the statute starts running on possible warranty actions when the "tender of delivery is made," not when the buyer learns that the product is defective
2) Privity: If the plaintiff did not buy the goods from the defendant, there is a possible privity issue
3) Buyer's examination of the goods: Look for fact pattern where buyer has examined the goods (no implied warranties as to defects which would be obvious on examination)
4) Disclaimer (e.g. "there are no warranties")
(a) Express warranties generally cannot be disclaimed
(b) Implied warranties of merchantibility and fitness can be disclaimed in EITHER of the following ways:
(i) CONSPICUOUS language of disclaimer, mentioning merchantibility OR
(ii) "as is" or "with all faults"
5) Limitation of remedies: does not eliminate warranties, simply limits or sets recovery for any breach of warranty
(a) possible to limit remedies even for express warranties
(b) general test is unconscionability
(c) prima facie unconscionable if breach of warranty on consumer goods causes personal injury
What are the 3 things you need to know about "perfect tender" for the bar exam?
1) "Perfect tender" only applies to sale of goods
2) "Perfect tender" does not mean that the seller's performance must be perfect; rather, the goods and the delivery must conform to the contract terms
3) A less than "perfect tender" by the seller generally gives the buyer the option of rejection of the delivered goods, so long as the buyer acts in good faith
What are the 4 things you need to know about rejection of goods for the bar exam?
1) You need to be able to distinguish rejection of an offer from rejection of the goods
2) If the seller does not meet the perfect tender standard, the buyer has the option to retain and sue for damages or reject "all or any commercial unit" and sue for damages
3) This rejection alternative is limited by cure, installement contract, and acceptance
4) Buyer must take reasonable care of the rejected goods
When does the seller have the opportunity to "cure"?
(Buyer cannot compel the seller to cure)
1) Seller's reasonable ground to believe would be acceptable, perhaps with a money allowance (in limited situations, seller has option of curing even after contract delivery date)
2) Time for performance has not yet expired
What are the requirements of an installment contract?
An installment contract requires or authorizes: (i) delivery of the goods in separate lots (ii) to be separately accepted.
The buyer has the right to reject an installment only where there is a substantial impairment in that installment cannot be cured.
True or False: If the buyer accepts the goods, it can later reject them.
True or False: Payment without opportunity for inspection is not acceptance.
True or False: Failure to reject after the buyer had reasonable time to reject is acceptance.
True, rejection must be timely
What is the effect of a buyer keeping the goods on acceptance?
Effect of buyer's keeping the goods is implied acceptance (look for the buyer's keeping the goods without objection)
What is the effect of revocation of acceptance?
(Same as rejection of the goods)
Buyer returns the goods and the seller returns payments made. (In limited circumstances, a buyer can effect a cancellation of the contract by revoking its acceptance of the goods)
What are the requirements for revocation?
1) Noncomformity substantially impairs the value of the goods
2) Excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction
3) Revocation within a reasonable time after discovery of noncomformity
When is specific performance an allowable remedy?
(Usually not the right answer)
1) Contract for sale of real estate
2) Contract for sale of goods (must be unique goods, like antiques, art, custom-made, or other appropriate circumstances)
3) Contract for services (no specific performance, possible injunctive relief)
What is the right of an unpaid seller to get its goods back?
1) The buyer must have been insolvent at the time that it received the goods
2) The seller demands return of goods within 10 days of receipt (becomes "reasonable time" rule if pre-delivery, buyer was solvent)
3) The buyer still has the goods at the time of demand
What are expectation damages and how are they calculated?
Expectation simply means that people who contract expect that the other person will not breach. Expectation damages protect that expectation.
1) Look to fact for dollar value of performance without breach
2) Look to facts for dollar value of performance with breach
3) Compare the two to determine the amount of damages
What are the damages rules for sale of goods?
General policy: Putting the innocent party where it would have been had the contract been performed (expectation)
3 relevant facts:
1) who breached
2) who has the goods
3) was there a later "replacement" deal
How are damages calculated for seller's breach?
1) Seller breaches, buyer keeps the goods: [Fair market value if perfect - fair market value as delivered] or [cost of repair]
2) Seller breaches, seller has the goods: [market price at the time of discovery of the breach - contract price] or [reasonable replacement price - contract price]
2) Buyer breaches, seller has the goods: [contract price - resale unless seller cannot resell in which case the seller can recover the contract price and in some situations provable lost profits]
What are incidental damages?
Costs incurred in dealing with the breach such as costs of storing rejected goods in a sale of goods or finding a replacement in a services contract (ALWAYS RECOVERABLE)
What are consequential (special) damages?
Consequential damages are limited to damages arising from P's special circumstances and recovery of consequential damages is limited to situations in which D had reason to know of these special circumstances at the time of the contract.
What are avoidable damages?
Damages that could have been avoided without undue burden on plaintiff. Burdens of pleading and proof are on the defendant.
When can you recover reliance damages?
As an alternative to expectation damages (when calculating expectation damages is too uncertain)
What are liquidated damages?
Contract provision fixing the amount of damages.
The issue is validity, and the concern is whether the provision is too high, such that it amounts to a penalty
Test is (1) damages were difficult to forecast at time contract was made, and (2) provision is a reasonable forecast
What is anticipatory repudiation and what is its effect?
Anticipatory repudiation is an unambiguous statement or conduct (i) that the repudiating party will not perform (ii) made prior to the time that performance was due
Anticipatory repudiation by one party excuses the other party's duty to perform
Anticipatory repudiation generally gives rise to an immediate claim for damages for breach unless the claimants has already finished her performance
When can anticipatory repudiation be retracted?
Anticipatory repudiation can be withdrawn so long as there has not been a material change in position by the other party.
If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided.
If the words or conduct of 1 party give "reasonable grounds for insecurity," what can the other party do?
1) Demand adequate assurance (in writing)
2) If it is "commercially reasonable," suspend performance until it gets adequate assurance
What are the 4 things you need to know about common law and the material breach rule?
1) Damages can be recovered for any breach
2) Only a material breach by 1 party excuses the other party from performing a contract governed by common law
3) Whether a breach is material is a fact question
4) If there is a substantial performance, then the breach is not material; if the breach is material, then the performance was not substantial
What is the divisible contract corollary?
In a divisible contract, there can be a contract law recovery for substantial performance of a divisible part even though there has been a material breach of an entire contract.
What is an express condition and how can they be identified?
Express conditions are:
1) Language in a contract,
2) Limits obligations created by other contract language
Triggering words: if, only if, provided that, so long as, subject to, unless, when, until, on condition that, in the event that
What is the standard for determining whether an express condition has occurred (or been satisfied)?
General rule: strict compliance is required for "satisfaction" of condition
Exception: Conditions of personal satisfaction of 1 of the contracting parties do not have to be strictly complied with; courts simply look to whether a reasonable person would be satisfied
How can an express condition be eliminated so that its nonoccurrence does not affect performance obligations?
1) Waiver: Identify the person who benefits from or is protected by the express condition. Then look for a statement by that person giving up the benefits and protection of the express condition.
2) Prevention: Look for the person protected by the express condition hindering or preventing the occurrence of the express condition.
What is the difference between conditions precedent and conditions subsequent?
Conditions precedent excuse performance until and unless they occur (almost all contract conditions are CP)
Conditions subsequent occur subsequent to the start of performance and excuse performance when they occur
Neither conditions precedent nor conditions subsequent create new performance obligations, but instead merely limit performance obligations otherwise created
What is the key for rescission?
The key is whether performance is still remaining from each of the contract parties
If so, the rescission is validIf not, the rescission is invalid
What is an accord and satisfaction and what is its effect?
Accords are agreements by the parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation
If the new agreement (the accord) is performed (satisfaction), then performance of the original obligation is excused
If the accord is not performed, then the other party can recover on either the original obligation or the accord
What is a modification?
Modification is an agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation
What is a novation?
A novation is an agreement between both parties to an existing contract to the substitution of a new party (i.e. same performance, different party)
Who is liable after a novation?
Novation excuses the contracted for performance of the party who is substituted for or replaced
How is delegation different from novation?
Novation requires the agreement of both parties to the original contract, and excuses the person replaced from any liability for nonperformance.
Delegation does not require the agreement of both parties and does not excuse.
If there is damage or destruction of the subject matter of contract, what result at common law?
If the damage or destruction renders performance of the contract impossible, then it is a valid excuse.
If there is damage or destruction of the subject matter of contract, what result under Article 2?
If it involves the sale of goods, do risk of loss first.
If risk of loss is on the buyer, then the buyer pays.
If risk of loss is on the seller, then the buyer does not have to pay. Whether the buyer can recover damages from the seller depends on the facts.
What is the general effect of death on contract obligations?
Death does not make a person's contract obligations disappear.
Exception: Death of party to contract who is "special" person excuses performance
What are the rules regarding subsequent laws or regulations?
If the later law makes the performance of the contract illegal, then excuse by impossibility
If the later law makes the mutually understood purpose of the contract illegal, then excuse by frustration of purpose
Who is a third-party beneficiary?
Not a party to the contract. Able to enforce contract others made for her benefit.
Who is a promisor?
Look for person who is making the promise that benefits the third party
Who is a promisee?
Look for person who obtains the promise that benefits the third party
What is the difference between an intended beneficiary and an incidental beneficiary?
Only intended beneficiaries have contract rights. Intent of the two parties to contract determines whether intended or incidental.
Who are creditors and donees?
Intended beneficiaries are either donees or creditors (usually donees). Look at whether third-party beneficiary was a creditor of the promisee before the contract.
When can third-party beneficiary contracts be canceled or modified?
The test is whether the third party knows of and has relied on or assented as requested. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract provides otherwise.
Who can sue whom in third-party beneficiary contracts?
1) Beneficiary can recover from the promisor
2) Promisee can recover from the promisor
3) Beneficiary cannot recover from the promisee
Limited exception: Creditor beneficiary can recover from promisee BUT ONLY on the pre-existing debt
If a third-party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee
What is an assignment?
An assignment is a transfer of rights under a contract. It involves two steps:
1) Contract between only two parties
2) One of the parties later transfers rights under that contract to a third party
Who is an assignor?
Party to the contract who later transfers rights under the contract to another
Who is an assignee?
Not a party to the cotnract. Able to enforce the contract because of the assignment.
Who is an obligor?
Other party to the contract
What are the limitations on assignment?
1) Prohibition: language of prohibition takes away the right to assign but not the power to assign. This means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment.
2) Invalidation: language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee
WHEN IN DOUBT, go with prohibition
True or False: Even if a contract does not in any way limit the right to assign, common law bars an assignment that substantially changes the duties of the obligor.
Assignment of right to payment (never a substantial change)
Assignment of right to contract performance other than right to payment (usually substantial change)
What are the requirements for assignment?
The general rule is that consideration is not required, but gratuitous assignments can be revoked
Can an assignee recover from the obligor?
True or False: Assignor for consideration can recover from obligor.
True or False: Obligor has same defenses against assignee as it would have against assignor.
True or False: Payment by obligor to assignor is effective until obligor knows of assignment. Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment.
What are the implied warranties of an assignor in an assignment for consideration?
In an assignment for consideration, an assignor warrants:
1) the right assigned actually exists
2) the right assigned is not subject to any then-existing defenses by the obligor
3) the assignor will do nothing after the assignment to impair the value of the assignment
(Assignor does not warrant what the obligor will do after the assignment)
If there are multiple assignments, what is general rule if they are all gratuitous assignments?
Last assignee generally wins
What is the general rule if there are multiple assignments for consideration?
First assignee for consideration wins
Exception: A subsequent assignee takes priority over an earlier assignee for value only if he both 1) does not know of the earlier assignment and 2) is the first to obtain (i) payment, (ii) a judgment, (iii) a novation, or (iv) indicia of ownership
What is a delegation?
Party to a contract transferring work under that contract to third party
What is the relationship between an assignment and a delegation?
Assignment is the transfer by a party to a contract of his rights or benefits under the contract to a third party who was not a party to the contract
Delegation is the transfer by a party to a contract of his duties or burdens under the contract to a third party who was not a party to a contract
Which duties are delegable?
Generally, contractual duties are delegable.
Delegations are permitted unless either 1) contract prohibits delegations or prohibits assignments OR 2) "personal services contract" that calls for VERY SPECIAL skills
What happens if, after delegation, the third-party delegatee does not perform?
1) Delegating party always remains liable
2) Delegatee liable only if she receives consideration from delegating party